Coming out of the financial crisis, hedge funds seem to be increasingly outsourcing and paying for commoditized versions of the service providers they rely on. A recent and far-reaching instance of this is Citi's new Hedge Fund 3.0 platform that consists of:
Business process outsourcing for middle-Office, collateral management, cash & treasury, and reference data management functions
Specialist HR and benefits brokers, including professional employee outsourcing (PEO) options
Off-premise IT services, often leveraging cloud technologies to reduce IT costs
Knowledge process outsourcing (KPO) allowing hedge funds to outsource basic data analysis and information gathering to support risk management and ground-level investment research
From a Coasian economics of the business firm perspective, this platform is quintessentially on the "buy" side of the "make or buy" decision. While the efficiency gains seem obvious, one question is how it may impact hedge fund risk taking, style drift, access to capital, and other aspects of hedge fund governance that are important to investors.
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